Paragon Commentary

Futures File: Natural Gas, Corn, and Silver

Nov 09, 2018

Natural Gas Flares Higher

As cold weather is descending across much of the United States, the natural gas market has started to heat up, nearing a two-year high. The fuel, which is the most popular source for home heating, is suddenly in high demand as forecasts call for winter-like weather from Texas to New England.

While snowfall is expected to be light, cold temperatures should have homeowners cranking up the heat, which boosted natural gas prices by more than 15% this week, trading Friday for $3.76 per million British thermal units.

Natural gas inventories are relatively low right now, thanks to low prices during the last few years, which have discouraged gas producers from drilling new wells. If this winter turns out to be surprisingly cold, the market could gain steam. Otherwise, the short-term cold spell and market rally could be just a brief gas bubble.

Silver Market Tarnished

Silver prices plunged to $14 per ounce on Friday, nearing a level that has enticed bargain hunters in the past, but they may be running out of patience and money as the market continues to return to that level.

Precious metals have been in a malaise as U.S. interest rates rise, making investments in bonds, stocks, CDs, or even savings accounts more attractive than metal, which doesn’t pay interest or dividends. If fears of inflation return, silver could roar back to life, but for now the market is sitting near a three-year low.

Chinese Corn Plagues USDA Reports

Corn prices went wild on Thursday as a U.S. Department of Agriculture report shockingly showed that world corn supplies nearly doubled since last month.

The report was not in error, but instead was updating Chinese corn supplies dating back to 2007. China has notoriously been tight-lipped about its commodity inventories, leaving the rest of the world guessing at their stockpiles of corn, cotton, copper, steel, and dozens of other markets.

Without a solid understanding of where Chinese supplies of corn stand, their future demand is harder to guess at, leaving loads of uncertainty surrounding the world’s largest commodity buyer. This is what the Chinese want, since they can use their private information to their advantage in pushing and pulling global prices.

Despite the USDA’s stunning update, the corn market weathered the news relatively well, falling by only a few cents by midday Friday to trade near $3.70 per bushel.